Won Rises as Foreign Funds Buy South Korean Stocks; Bonds Drop

March 6 (Bloomberg) -- The won advanced for a second day
after a surge in U.S. equity markets prompted global funds to
buy South Korean stocks. Government bonds fell.

The Dow Jones Industrial Average rallied to a record
14,253.77 yesterday, erasing losses from the financial crisis,
while Asian shares climbed as investors bet global central banks
will continue stimulus measures. Foreign funds boosted their
holdings of South Korean bonds and equities to an all-time high
in February, data from the Financial Supervisory Service showed
today. Stock holdings increased by 1.5 trillion won ($1.4
billion) to 421.2 trillion won.

“Rising optimism on the U.S. and the global economies is
helping boost stock markets and prompting investors to buy
riskier assets in emerging markets,” said Hong Seok Chan, an
analyst at Daishin Economic Research Institute in Seoul.
“Foreign-fund inflows are supporting the won, while concerns
that authorities may not let the won gain too much are limiting
gains.”

The won climbed 0.4 percent to 1,082.60 per dollar in Seoul,
according to data compiled by Bloomberg. The currency posted its
largest gain since Feb. 4 yesterday. One-month implied
volatility for the won, a measure of expected moves in the
exchange rate used to price options, fell 40 basis points, or
0.4 percentage point, to 6.44 percent. The Kospi index of shares
closed up 0.2 percent.

Reserves Drop

South Korea’s foreign-exchange reserves dropped by $1.51
billion to $327.4 billion as of end-February due to the weakness
of the euro and the pound against the dollar, the central bank
said in a report today. The drop in the reserves is the first
since May.

Currency stability is needed to protect local companies and
the nation will “pre-emptively, effectively” respond to
exchange-rate risk, according to an e-mailed statement from
President Park Geun Hye’s spokesman Park Sun Kyoo last month.

The yield on the 2.75 percent bonds due September 2017 rose
one basis point to 2.74 percent, according to prices from Korea
Exchange Inc.